YouSaid · the spoken record

Karl Scheer

lines on the record: 70
first: 2018-10-29
most recent: 2018-10-29
sittings or episodes: 1
sources: podcast

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“Well, I suppose all of them, but to answer your question specifically, you're unable to control the future, and the past is the past. It's gone. So you got to focus on right now, and you're really not even able to control that. So what you are able to control is your own behavior, your own process. You have to focus on doing everything you can right in that regard. And then what unfolds will unfold and you can't be too worked up about that.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm a bit of a historian on markets, and I think it's incredibly valuable to go back and read about different regimes in history. So I read a book called Golconda about 20s and 30s. I'm reading a book called Devil Take the Hindmost, which is a history of crashes and manias. There's a book called The Go-Go Years about the late 60s. It's remarkable how much overlap there is in how the human beings involved behave in the behavior of the people involved in those markets. And I think it's extremely valuable to see that these things happen over and over and over and be able to apply some of those lessons to current markets. I started an investing world in the mid-90s, which means I get to see long-term capital management and the Thai bot and the ruble and then the bursting of the internet bubble and WorldCom Enron and then the global financial crisis in Europe. So I've seen a number of different interesting things, but it's also valuable to expand that as much as possible.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“The most important thing my father taught me and taught it to me both by saying it and by demonstrating it is your kids early around for real brief time. And if you're not there when they're there, they leave and you've missed that opportunity. And I can't believe how quickly my children have grown up. I have a sixteen year old boy now and a ten year old on the other end. And it's amazing. They're going to be gone. They're going to be off in college and then gone leading their own lives. And it feels like they were born just yesterday. So that's the most important thing from a kind of life perspective. He was a dentist, so he didn't have the best investment advice.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“I have ceased to show anyone when your returns versus peers, and I hope that a bunch of Big Ten endowments and those like you see that are kind of on the periphery of Big Ten endowments have agreed never to provide New Cubo, for example, with one-year returns because we think that that sets some terrible precedents. It's a huge distraction”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“the annual single year return derby that the media focuses on. And you know we're all complicit in to some degree. I have ceased to ever show one year, notwithstanding the fact that I mentioned it about 20 years ago, right?”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“Have a trainer and we throw some weights around and run, and it's a lot of sprinting and breathing hard. She kicks my butt every morning. It's impressive. The other thing is that my family and I have gone on some really neat vacations recently to places like Arizona for spring break, Iceland, Norway, Sweden. And the amount you can learn from touching other cultures, even ones as similar as those are to American culture, it has been incredibly valuable for me and my kids. Also, those places are really pretty.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“I would like to answer that in two ways. First of all, my wife and I are lucky enough to be able to work out every morning together. And so that is one of my favorite parts of the day. And almost every single day, it's the only time she and I actually get to talk. So it's wonderful.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“The opportunities in the portfolio, I would say this I guess I'm in my eighth year now. I feel like we have set it up, but it's only step one. And there has to be a resetting. I mean, the last eight years has been more or less directionally one kind of market. We're a little lower on the risk spectrum. We can take more risk in the portfolio within our strategic asset allocation framework just by choosing different types of managers and by having a different level of concentration in some areas. So I feel like we've set the table, but we haven't gotten aggressive yet. And I think that carefully, whenever the next price reset occurs, we can set up a whole new period of returns by buying assets at the discount and by investing in groups that are able to do that.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“There are places where you can get as much return as you're likely to get and pay almost nothing for it. SMP 500 is a great place just to accept the return of the marketplace and strive for excess returns elsewhere, again with just a handful of people we need to be careful about where we spend our time. It probably makes no sense at all to try to outperform the S&P five hundred today. Similarly with our fixed income, we want to get it right one time and move on. And so we did a lot of due diligence a few years ago in a couple different managers chose to, and we monitor. We don't spend much time understanding the whole global universe of core fixed income managers.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“In our hedge fund portfolio, we have 10 positions. And we think that 10 positions is about the right amount of diversification. It's about the maximum amount of diversification in order for us to be able to monitor and manage and understand and know those hedge funds really, really well. So there's a certain just resource balancing that has to go on there. And that's true across the whole portfolio as well. We couldn't have a portfolio of 100 positions or a two small team. So we have roughly half that, including both public and private. And we think we can know them very, very well. And some of them are big passive positions. We have a huge slug of Vanguard 500. And I don't know if that's dorky or not among my endowment brethren, but I don't care if it makes a lot of money for the university. That's what I'm focused on. And so with some of those positions, we can maybe have a little bit more in active positions that we need to monitor more closely. But that's a key trade-off for a team our size.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“We invested in a hedge fund that was a low volatility hedge fund that had an outsized position in it, which I failed to identify during due diligence. It ended up costing the portfolio something like, I think, 40 basis points at the top line, so not a big deal. And we legged into it as we normally do, part of that effort to minimize the impact of investments. It was in 2014 around the whole. There were a couple different things that occurred in September, October of 2014, and absolute return hedge fund world. And it took a little chunk of our returns. And I think we learned some very important lessons from it. I don't think we'll make that same mistake again. But I'm also grateful that we had some of the practices in place that we did have so that it was minimized.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“Dropping the ball means that you can score touchdowns. And we do a very good job of that, try to make sure that when we do make mistakes, they're inevitable, right? When we do make mistakes, they're small. They're the ones that you can afford and they're low impact on the portfolio. So it's really about just trying to make sure we have really good execution.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“On the one hand, what other people do has absolutely no bearing on what we do. On the other hand, I'm an extremely innately competitive person. I don't think it's unfair or overly charitable to say that I'm ambitious on behalf of the university, but I definitely want to beat all those other folks, and I'm delighted to tell you that we were top quartile the last year and three years, meaninglessly short time periods, but still proud of it. We try to do what we can do the best way we can do it. And we think that, again, not screwing it up is 95% of the way to doing a good job.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“and so it just requires certainly years, if not decades to recover from that kind of hit. The other thing is that most folks have a foundation fundraising fee that goes to their fundraising arm to help their budget, which means that that 5% is actually a little higher than it sounds, maybe 5, 5, or 5, 7, or even 6. And so while the returns look like they were much higher than that, they were very, very volatile. And during those down periods, we spent because we had scholarships to fund and we had professors that showed up. And so that volatility takes a lot out of it too. Makes it worse than it seems.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“One of the things that is counterintuitive to most folks, first of all, just from a historical standpoint, the 5% was created when interest rates were like at 9. If you think of it as interest rates minus four, the spending policy should be negative two now, which doesn't make any sense, of course. But we're spenders, we sell when we're down and we sell when we're up and we sell in the middle and the calculation methodology, the formula for that 5% is looking over the last three years or five years or seven years, depending on what institution. And sometimes it's a different model, but many of them have that kind of moving average spending policy. And that means that after 2008, people were spending five percent based on the last couple years values, which was ten percent based on their 2009 values. And so what that does is it takes a significant number of dollars out of the endowment, so it is very difficult to recover. The number of dollars that are recovering is much, much less than the number of dollars that got hit by the crisis.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“There are some other positives about the University of Cincinnati. One is the alums I just mentioned. There's one, a couple really special alums, and then there's a handful of incredibly dedicated, incredibly intelligent people who show quarterly and provide us with their best advice, their full open book of contacts. This is our investment committee, and do it with no ego and doing it for the right reasons. And I'm extremely grateful to them for their mentorship and their guidance and their partnership in running. These are difficult pools of capital. One of the things that people probably don't grasp is that the 5% spending rule makes absolutely no sense for about the last 20 years. And so a lot of folks are addressing that by reducing their spending policies. I think four is the new five among endowments. Should probably be three handle, and I bet it will be soon. But what that means is that we're making up for a long time where we frankly overspent and are trying to rebuild endowments at a time where.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think that's exactly the right question because every institutional investor, every owner of capital has a distinct personality and notwithstanding the commonalities among different pools have potentially slightly different goals for their pools of capital. So at the University of Cincinnati, we have, just like everybody else, a little bit of history. So there are certain kinds of real estate investments that just cause people to have indigestion. And so there's no sense spending time on those for historical reasons. There's a certain risk tolerance that is more the human beings involved than perhaps the university. In other words, the humans can take less risk and believe less risk is appropriate than really the university from a kind of mathematical perspective could take. And that's appropriate because what they're doing is trying to match the risk of the portfolio to the community, to donors, to the fundraising effort, to the president. And even the best strategy in the world doesn't work if you can't survive to the pay.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“Mentioned earlier, we do everything the hardest way possible. We effectively make up our investment process from scratch every time. Now that sounds horrible. We've done it enough times that we can get all of the important parts of it addressed. What we avoid is checking boxes. Again, that's another thing where you ask the question for the wrong reasons, right? We avoid doing things for the wrong reasons. So I detest checklists. We actually have a thing in our process called a non-checklist, which is stupid because in trying to make sure that we've done all the important parts of it after what we go back and say, did you do this? Did you do X? Did you do Y, did you do Z. But I think it's valuable to make it up as you go along because it allows you flexibility to adapt to changing market environment, to identify the key issue.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“I don't expect private equity fees to go down anytime soon, and I think there's a place for having a healthy fund. That's another reason, by the way, we invest in smaller funds because the largest fund managers not only have astronomical fee revenue streams, but they're also the cleverest people in the world about charging fees that we can't see. And I don't want to play that game with them.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“What matters is Net returns to us, and so if a fund is able to generate really reliable, exceptional returns, net of all their fees, I'm less worried about it. On the other hand, looking forward, you don't know if they're going to generate those sorts of returns. You're pretty sure they're going to generate those sorts of fees. So it's situational, but one thing I want is transparency. One thing that I think is developing is staged or tiered carry if a fund generates three times their money and a IRR that's 30% or above. I think a 25% carry may make a lot of sense. What I don't want to see is 12 different sources of revenue, some of which look like maybe they're calculated on a leveraged company value and fee offset that's below 100%. That just makes me feel like you're trying to make money off of our money even if we don't make money. So somewhat nuanced view. I don't detest high fee.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“There was a healthcare-focused firm. This is probably a decade ago. There was a healthcare-focused firm that had a hedge fund and a private equity fund. And I spent several years again trying to access this hedge fund. It was closed the whole time. They decided they would launch this private equity fund. And if you invested in the private equity fund, you would have access to the hedge fund. After a long due diligence process, and they were a little bit more open, so we got to spend more time with them. This was before I joined the University of Cincinnati. We realized that they had a resetting high watermark. And perhaps I should have noticed that earlier, but that was a deal killer to me. You can't have a resetting high watermark. It's a total misalignment of interests. And ultimately, we decided not to invest in that hedge fund. We did invest in the private equity fund because the timing of them was such that we had already done so. And I was horrified by that. I'll never do another staple deal again. Well, at the end of the day, they actually was a really...”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“We had started to notice it, and I think it changed over the due diligence process and culminated in this meeting where it was across a line. And it also just gave us this sense that this wasn't the firm that had generated the returns that we were so eager to access. This was a different firm that the odds were much lower they would be as successful.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“On top of that they had some fee structure that was terribly misaligned and they were determined not to change that. And so for reasons that are not necessarily box checking, they ended up being the art side of this, not the science. We ended up saying no, I'm comfortable with that decision, but holy moly did we waste a lot of time on that.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, there are a number of those stories actually. We were looking at a group, I'm going to be vague, a group in the Midwest that's a sector-focused firm run by two really compelling people, brilliant, brilliant people with a sensational track record, and we begged our way in every time we went to this city, we met with them for years, for three or four years. We probably met with them eight times during that and sent them Christmas cards. And we're as nice as we could be. And built what I think was a real personal relationship, which I think is key in this business, notwithstanding the financial nature of it. And so finally, we got access to due diligence and had an opportunity to invest a real amount with the fund. And on our final due diligence visit, we walked in and the whole staff had this aura of arrogance from the first person we met to the last person we met. Their view was basically you were so lucky to be here.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, we have some consultants, so we study and study and study the results of their analyses. We also talk to them endlessly about the firms, ask all the questions we would ask directly to the firm. We do a lot of referencing ahead of time so that when we sit down with those groups, we can dial in directly to the key issues, organizational turnover, the specific way they add value to companies, and so on.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, we're not afraid of saying no after begging and begging and begging in. We're not afraid of saying no at any time, and we have done so after a tremendous amount of work. It's hard. That doesn't feel good, but we're not afraid of saying no after a huge amount of work and after saying we desperately want into your fun. The due diligence has to be very pointed, very, very focused on key issues at that point because you're unlikely to have a really long drawn out due diligence process, right? You probably don't have that much time spending their office with the key principles asking them the ordinary sorts of questions. So what we do in those cases is try to do all the homework up front. This is generally true, but also especially true in these sorts of cases. What's that homework like?”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“Due diligence process like where you have an agenda, which is to get into the fund. And that also engenders this sort of confirmation bias that you want to believe that's the fund you want to get into.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“In the public markets, there are a handful of groups that seem to be able to put up good numbers, even in long only world, year after year after year after year. They're pretty rare, and they've been closed for a long time, so we take two approaches there. Number one, if we have them, we try to stuff as much money into those sorts of managers as we can. And if we don't have them, we wait for them to stumble and we give them a call and actually last almost exactly a year ago, a manager just had a problem that was very public and reflected poorly on them. And we called and said, hey, can we get in? and ended up adding a nice little slug to them on December 31st of last year as a results. We do everything the hardest, most painful way possible because we think that's the best way to do it. It's sort of the output that it's painful and difficult, but it's also what we think is the smartest way. So we don't mind finding a group that's already incredibly successful, that's very difficult to access, and just beating our heads against it until we get in. And we've been remarkably successful at getting into funds that many folks otherwise can't access.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“Prices that use low leverage. And we think if you have a portfolio of those things, and there can be a million of those things, if they're three, four, five hundred million dollars, every town can have four of them successfully. So there's not a shortage of those names. The difficulty there is sourcing them. It's really challenging to find.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I suppose people would define that differently for a gigantic pension, perhaps the best manager is the one with whom you can put $400 million, or with whom you can have a lot of co-investment. That's not at all how we look at it. And I will also offer to you that we don't really look for the best manager. Aside from venture capital, which is an extraordinary part of the investing world, we're not trying to hit the top mark because in doing so, you risk hitting the bottom too. The way we look at private equity is if we can do nothing for the wrong reasons and make all of our decisions for the right reasons, then we can probably cut out the bottom fifth, quarter, maybe third of the distribution, in which case if we pick median now, all of a sudden you're talking about two thirds the way up, almost top quartile. And we're not usually swinging for the fences. What we're trying to do is find very reliable execution, high conviction ideas that are managers that add value to their companies, that buy things at reasonable price.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's not as big as we'd like, certainly. I'll say that what we've been trying to do is leverage that to be able to gain access to other similar firms that either have a good relationship with this human being or look at it and say, oh, I see that you are a good LP because you have this. So what I'd like to do is leverage that one single thing. But I think it fits in with our ethos of doing our investments almost entirely bottom up, especially in a place like private equity. Anybody who said nothing lasts forever has not been in a bad private equity fund. They're just brutal. It's incredible how much life force they can take out of you and how much return they can take out of the portfolio. So again, trying not to do anything for the wrong reasons, we don't make private equity investments because we think India is exciting. We would only make a private equity investment because we found a single manager who is a very exciting manager and happened to be in India just as a single example.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“We were extremely fortunate at the University of Cincinnati with our alums. You might not necessarily think that a little Midwestern Rivertown University otherwise actually huge, 48,000 students, 16,000 faculty and staff. You might not think that that's a hotbed of venture capital managers, but we have one of the world's best whose name I'm not going to say, who is not only extremely talented, but very grateful to UC for all it did for him and was able to get us into one of the names you'd really want to get into. So that was an exciting moment for us.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“Moved that to 15%, took a bunch of those percentage points and put them in the kind of absolute return hedge fund portfolio also increased our private equity. So generally just increased alternatives at the cost of mostly a fixed income and to a little bit U.S. public equity.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“I did. We had, I guess I'll just get specific. We had about 30% in fixed income when I arrived, and we dropped that immediately to 15%. When I say immediately, we had a responsible staged migration that took about one year. Those are the times where you can really get killed. There's only a few ways to lose money permanently, fraud, buying something at an outrageously high price, excessive concentration or leverage. But the big one that everybody that happens the most frequently is whipsawing yourself and changes in strategy are when you can do that, either when you check it out at the wrong time, get too aggressive at the wrong time, or in our case, just are changing strategies to transition between one group and the next. We manage that very, very carefully over the course of calendar 2012 and actually had a great 2012 by some dumb luck and maybe a little bit of intelligence. So we had 30% fixed income when I arrived.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“We've never had that problem, so I'm very pleased to report that we've managed around that. So what you want to do is have buy-in from your committee on the process and ideally on the portfolio as well, so that if something should go wrong, they understand why it's in there, if a private equity manager should stumble, for example, they understand why it's there, and ideally they can even be enthusiastic about and push us to invest more with that manager or go in the offense. In order to achieve that, we had what we called information sessions, which were basically offline discussions with the subset of investment committee members where we gave them all the details of a manager ahead of making the investment. We were very clear on every one of those calls that we're not asking for your approval. We're not asking you to endorse or not endorse. We're asking you to listen, provide feedback, and provide any connections you have. So that's just a kind of practice that keeps those lines crisp and keeps responsible.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“At the wrong time, you effectively give them discretion over choosing managers. And so we're all cognizant of the fact that that's a risk and work around it, but the culture matters a lot. And I've heard of some investment committees that either are micromanagers or have a combative relationship with the investment office, and I don't really know how that evolves, but I know that at the end that's not very productive.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“Their role. And then they are responsible for making recommendations regarding hiring and firing the CIO. So there's accountability, there's a sharp line drawn between the amount of risk and the implementation of that risk. And I think that that structure works very well. We have a very well written investment policy statement that lays that all out very clearly, lays out the goals of the portfolio and the roles of other entities across the university and so forth. So the other part of it is not so much written down, but culture. And the governance and oversight culture at the University of Cincinnati involves basically the investment office and the investment committee partnering up. So we have a very collaborative relationship. We in the investment office seek to try to continue that by being incredibly transparent with them, as transparent as we get to know any single thing they want, but you have to balance that against accidentally giving away discretion, right? If you tell them too much and in the wrong order or ask them the wrong question,”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“It is the underpinning, it is necessary but insufficient to have success. You can't have success with a bad governance structure. And a bad governance structure includes not only a very clear delineation of roles and responsibilities, and also the right roles and responsibilities, I think it's extremely difficult, if not impossible, for a committee to pick private equity managers in quarterly meetings. I don't think, for example, that works very well. Maybe you could make it work, but that would be a hurdle you'd be overcoming. And so discretion within the office is critical, I think. Clear discretion and clear rules around what the office can do. In our example, we were able to hire and fire managers and manage exposures within the pre-approved ranges by the investment committee. We recommend as strategic asset allocation ranges and targets, and then the investment committee approves those, approves a kind of risk level, which there's no way of defining articulating a risk level, so it's more of an iterative, intuitive process, but that's also.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“There was, I was the second CIO. The prior CIO had been there about six years, did a terrific job with governance, structure, oversight, had helped oversee a transition with the treasurer, had started to do direct private equity investments and direct hedge fund investments. So the ball was rolling really well when I arrived, and it gave me an opportunity, I think, to step it up and make some significant moves in the right direction of just more of most of the things I just mentioned.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“University of Cincinnati had the job opening, and there were two of us, Tim Kavanaugh and I were co CIOs, and that was fine. We made it work, but it's not an optimal structure, and either of us could have done the basically two people doing one person's job. So we were able to each assume control of our own pool of capital. And I was very, very excited to work for university. I had amazing family office clients. I was very excited to work for a larger pool of capital. family offices, you know, like I said earlier, there's a range of different qualities. Endowments I think are generally regarded as all pretty high quality places. And so just from a kind of good housekeeping seal of approval, I was eager to have that experience as well.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, Dick Farmer's airplane left when Dick Farmer was on it. See, sometimes that was 15 minutes before departure time. So may as well get there early.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“And it was only about two years. And so he pushed that advantage as hard as he could and created a durable lasting advantage for the company that lasted maybe a couple more decades. So when you have a little lever, pull it.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“And a need person. Well, for example, probably the key takeaway was the value is in the discussion. So you have to have a well-informed group of participants in a discussion where people can bring up all the various viewpoints, can espouse different perspectives, and then everybody can come to an agreement. Not everybody has to get to exactly the same outcome, but you can respectfully discuss all the competing interests and various facts. And then usually some human being has to make the final decision. He would say the value is in the discussion, and then he would joke. But I'm going to vote shares. So that was extremely valuable. And there were a number of other tidbits along those lines. When you have an advantage, push it. Press it really hard. He managed to get a patent protection on a process for cleaning uniforms. It was a uniform company that he ran called Centos.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“I was with the family six terrific years, learned a ton of basic business principles from that fellow I just mentioned, Dick Farmer, incredible, amazing lion of industry.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“certain level and so he said look we can rest on that that will exist you needn't worry about that pool of capital and we'll work on ways to rebuild the other side of the ledger”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“Somebody observed on your podcast just recently that the way that things get down to 90% is by going down 80 and then losing half their value. That's pretty intimidating. I can tell you an anecdote about one of the meetings we had, and then I'll answer your question. As we were walking in to meet with the head of the whole family, the man who built the business from which the wealth came, his wife looked at us and apologized. We had probably lost her $100 million in the last couple months, and she looked at us like she felt terribly sorry for us that we were about to have this meeting. So he was not gentle on us. But on the other hand, I think that Pascal's wager is that if the world ends, doesn't matter. So you might as well behave as if it's not going to, right? It only ends once. And if it does, it doesn't matter what you did right ahead of time. And so I think we use that as a way of giving him confidence that it would be fine. And indeed, we had a pool of capital that was designed to never go below.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“Hasn't yet been identified. So we nurtured our group through that fall period and the beginning of the next year and to their credit they started to get aggressive in early 2009 and we were able to start making offensive moves, moves to try to make money from the experience.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“The family office had wonderful clients whom we were very closely connected to, and it turned into a very direct relationship where we went and sat with them pretty much every week during the fall of 2008 and early 2009 and explained what it was that we owned, reassured them that the world probably was not going to end, and helped them survive through what was an extremely difficult time, obviously, for everybody involved. One of the differences between family offices and big institutional pools of capitals, it's actually their money. They feel it a little bit more than the rest of us do. There's a principle there that's the actual owner of the capital and a similarity that you might not expect is that they are very much stewards of that capital for future generations. One of the things I'm very impressed by with family. Now, family offices are each a universe of one, right? But the ones I've met and respect very much think of it as a long-term pool of capital for a benefit that may”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“So our philosophical foundation is don't do things for the wrong reasons. Don't do venture because other people are having success in venture. What other people are doing in venture capital may have absolutely nothing to do with what you could do, right? So there's no overlap and it doesn't make any sense to chase them even if you're basically envious of their returns. And so you have to be pretty disciplined about identifying what's possible and pursuing it. In cases where we are able to unpack other endowments returns and identify that court are their returns or half their returns or sometimes all their returns come from venture, we look and say, ah, well, too bad we didn't start this 25 years ago, but we didn't. And so there's no reason to screw it up now trying to fix that.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source
“We try never to do things for the wrong reasons. And that comes from a maybe even broader philosophical tenet, which is usually people focus very much on what's there. They don't focus on what's not there. So for example, if you look at a percentage, you think, okay, there's the percentage and judge what it reflects on the world. Very rarely do we think of what the numerator and denominator mean, right? Very rarely do people think of what the assets and liability.”
2018-10-29 · Capital Allocators · Karl Scheer – Competing Sensibly as CIO of the University of Cincinnati (EP.74) · IDENTIFIED FROM THE TRANSCRIPT · source